Community Banks

Cathy Jamieson Excerpts

Tuesday 10th July 2012 Westminster Hall

[Guy Opperman]

The reality is that Hampshire, for example, has done what I am talking about and set up the Hampshire bank, or Hampshire Trust. It is backed by the local chamber of commerce and by local authorities. It is regulated, so it is possible to have a county bank that is regulated, but on a lighter-touch basis—I use that phrase again—than the larger banks such as Barclays or HSBC. Moreover, if we broke up RBS, which I will come on to discuss, the individual shareholders would have a say in a local county bank.

How do we create local banks? First, one must address the barriers to entry, which are considerable. Metro Bank has recently been established in London and the south-east, but only at huge cost and only after overcoming many hurdles. The example of the Hampshire bank shows that county banks can be created. I see no reason why we cannot do the same in Northumberland, or in the wider north-east region, and set up “The Bank of Northumberland” or “The Bank of the North-East”.

However, the truth is that a banking licence is notoriously difficult and costly to obtain. To try to remedy that situation, along with my hon. Friend the Member for Chichester (Mr Tyrie), who is the Chairman of the Treasury Committee, I met the chairman of the Financial Services Authority, Hector Sants, at the beginning of March. My hon. Friend and I sat down and tried to explain the problems to Mr Sants, and I am pleased to say that under this Government the FSA is considering trying to reduce the barriers to entry for smaller local banks.

On 12 March, the FSA’s chief executive wrote to me:

“We are conscious of the balance to be struck between ensuring high standards at the gateway, and the importance of allowing innovation and appropriate levels of access for new firms.”

He added:

“there has been public debate about the potential advantages of new entrants in the area of small, regional banks focused on servicing the SME sector. In such cases we will be proportionate in our approach and would invite all firms with a viable business model and appropriate levels of resources to a pre-application meeting to help guide them through the application process”.

In those circumstances, and with the background of a banking crisis, we need to look at the elephant in the room that is the Royal Bank of Scotland. The Government are understandably impatient to sell the 83%-nationalised bank, but the health of the public finances ultimately depends on the health of the economy, which itself rests on the stability and usefulness of the banks.

The taxpayer bail-out and the subsequent problems of RBS are well documented, and it now seems clear that the chances of the Government selling RBS as it is, and making a profit, or anything like one, are but a dim flicker at the end of a long tunnel. What the Government did with Northern Rock was undoubtedly the best option and the only real one, but RBS is different. I see RBS as an opportunity—as the Americans often say, “Don’t waste a good crisis.” We have a unique opportunity to seize the moment, and to ensure that RBS is managed for the benefit of the taxpayers, who own 83% of it, thereby transforming the banking sector. I suggest that we do not sell RBS as it is, but break it up, decentralise the branch management and use it to form the basis of devolved local community banks—imagine a local bank for every city or county—linked, where possible, with the local authorities and chambers of commerce.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I had not intended to speak—I just wanted to listen—but for clarity, will the hon. Gentleman say whether he is suggesting a form of mutualisation of RBS?

[Guy Opperman]

In real terms, the current RBS would go back to the people on a local basis, and if the hon. Lady listens I will explain how the shares could be devolved.

We would end up, I suggest, with dozens of little banks like 3i. The 3i Group plc is a large FTSE 100 company that started out as a Government business bank, as a support mechanism to get the country out of the 1930s depression. The new banks would be governed locally, with lending decisions made by managers who understood the local economy better than anyone at a London head office ever could. The managers would be embedded in their local economy, and could base their judgments on knowledge of people and businesses without being overruled by a credit risk computer or centralised targets. Their success would be intertwined with the success of the local economy.

I suggest that breaking up RBS is only half the solution. The next fundamental question is: what do we do with the Government shares? We could sell them, but I disagree with that proposal. We should give all 45 million people on the electoral roll the Government-owned RBS shares, making every voter a shareholder of a local bank created from the devolution of the RBS branches. Each local bank would coincide with a county or city council, and in my patch that would create a bank of Northumberland, with every adult in the county as a shareholder. Each bank’s lending powers would be limited to persons and businesses within its council boundary, and with residents as shareholders, the bank’s administration could be run by the existing council, to save costs and dovetail with existing infrastructure. If the plan went ahead, the 45 million shareholders would dwarf the 10 million that were created in the 1980s through the sell-off of BT and British Gas. It is crucial to remember that the Government did not bail out the banks—the public did. Their hard-earned money kept the banks afloat, and it is now time for them to share some of the rewards.

As well as giving taxpayers an effective rebate in the form of shares, the move would help to restore confidence in the banking industry, and boost the economy. The public is rightly fed up with a system that has become overwhelmed by small vested interests, a London-centric base and personal greed. What better way to repair that than by giving every voting member of the public a stake and a say in our state-owned bank? I accept that people could sell the bank, but the force of having 45 million British taxpayers holding banking shares could help transform the economy even if individual shares were sold. The alternative—there is one—is to give the shares and the branches to local authorities, which would be localism in its purest form, with state banking returned to a position of support for local communities, building on the German, Swiss and US models.

I am grateful to the Speaker for the opportunity to put my case today, and I thank the New Economics Foundation think-tank for its support. The endowment of local community banks, constrained not to lend beyond county borders and able to provide support for local businesses, is an important part of supporting local economies and communities across the country. With a mission to recycle savings locally and expand credit for productive loans that benefit the local area, but on a sound commercial footing, the strength of the case for reinstating a system of community banking is ever increasing. I suggest that we do not need to replace the commercial banking sector, because we can offset it and balance it out with a new system of banking. That would certainly introduce competition into a sector that is crying out for it, and transform banking in this country.